Question

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labor- hours. Its predetermined overhead rate was based on a cost formula that estimated $329,000 of manufacturing overhead for an estimated allocation base of 940 direct labor-hours. The following transactions took place during the year. a. Raw materials purchased on account, $205,000. b. Raw materials used in production (all direct materials). $190,000. c Utility bills incurred on account, $60,000 (90% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (1,015 hours) Indirect labor Selling and administrative salaries $ 235.000 $ 91,000 $ 115.000 e. Maintenance costs incurred on account in the factory, $55,000 f. Advertising costs incurred on account, $137,000. Depreciation was recorded for the year, $85,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment) h. Rental cost incurred on account, $110,000 (75% related to factory facilities, and the remainder related to selling and administrative facilities) 1. Manufacturing overhead cost was applied to jobs, $ Cost of goods manufactured for the year. $780,000 k. Sales for the year (all on account) totaled $1,250,000. These goods cost $810,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materiale Work in Process Finished Goods $ 31,000 $ 22,000 $ 61,000 Required: 1. Prepare journal entries to record the preceding transactions 2. Post your entries to T-accounts. (Don't forget to enter the beginning inventory balances above.) 3. Prepare a schedule of cost of goods manufactured 4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 4B. Prepare a schedule of cost of goods sold 5. Prepare an income statement for the year Complete this question by entering your answers in the tabs

Answer 1

According to the requirement of the question, we have to record journal entries, entries to T-Accounts, Cost of goods manufactured, Close any balance in the manufacturing overhead account to cost of goods sold, schedule of cost of goods sold, and at last income statement.

Requirement 1:- Prepare Journal entries to record the preceding transactions.

Transaction	General Journal	Debit ($)	Credit ($)
a.	Raw Materials	$205,000
	Accounts Payable		$205,000
	(Purchase Raw materials )
b.	Work in Progress	$190,000
	Raw materials inventory		$190,000
	(Raw materials used in production)
c.	Manufacturing Overhead	$54,000
	Utility Expenses (60,000 * 10%)	$6,000
	Utility Payable		$60,000
d.	Work in Process	$235,000
	Manufacturing Overhead	$91,000
	Selling and Administrative salaries	$115,000
	Wages Payable		$441,000
e.	Manufacturing Overhead	$55,000
	Accounts Payable		$55,000
	(Maintenance Cost incurred)
f.	Advertising expense	$137,000
	Accounts Payable		$137,000
	(Advertising Cost incurred)
g.	Manufacturing Overhead	$59,500
	Depreciation Expense (85,000 * 30%)	$25,500
	Accumulated Depreciation		$85,000
h.	Manufacturing Overhead	$82,500
	Rental Expenses (110,000 * 25%)	$27,500
	Rental Payable		$110,000
i.	Work in Process (Working Note)	$355,250
	Manufacturing Overhead		$355,250
j.	Finished Goods	$780,000
	Work in process		$780,000
k.	Account Receivable	$1,250,000
	Sales Revenue		$1,250,000
	(Sales Recorded)
	Cost of goods sold	$810,000
	Finished Goods		$810,000

Working Note:- Calculation of Manufacturing Overhead cost was applied to jobs.

Predetermined Overhead rate = $329,000 / 940 = $350 per direct labor

Applied overhead = $350 * 1,015 hours = $355,250

Requirement 2:- Post your entries to T-accounts.

Raw material Inventory

Beginning Balance	$31,000	Work in Process	$190,000
Accounts Payable	$205,000
Balance	$46,000

Work in Process

Beginning Balance	$22,000	Finished Goods	$780,000
Raw Materials Inventory	$190,000
Wages Payable	$235,000
Manufacturing Overhead	$355,250
Balance	$22,250

Finished Goods

Beginning Balance	$61,000	Cost of Goods sold	$810,000
Work in Process	$780,000
Balance	$31,000

Manufacturing Overhead

Utilities Payable	$54,000	Work in Process	$355,250
Wages Payable	$91,000
Accounts Payable	$55,000
Accumulated depreciation	$59,500
Rent Payable	$82,500
		Balance (Over applied)	$13,250

Cost of Goods Sold

Finished Goods

$810,000

Requirement 3:- Prepare a schedule of Cost of goods manufactured.

Direct Materials:
Materials	$190,000
Labor	$235,000
Total Raw materials Available	$425,000
Manufacturing Overhead	$355,250
Total Manufacturing Costs	$780,250
Add: Beginning Work in Process	$22,000
Less:- Ending Work in Process	($22,250)
Cost of Goods Manufactured	$780,000

Requirement 4 A:- Prepare a Journal entry to close any balance in the manufacturing overhead account to cost of goods sold.

Solution:-

General Journal	Debit ($)	Credit ($)
Manufacturing Overhead	$13,250
Cost of Goods Sold		$13,250

Requirement 4 B:- Prepare a Schedule of Cost of Goods Sold.

Beginning Finished Goods	$61,000
Cost of Goods Manufactured	$780,000
Cost of Goods Available for Sale	$841,000
Less: Ending Finished Goods	($31,000)
Un Adjusted Cost of Goods sold	$810,000
Less: Over-applied Overhead	($13,250)
Adjusted Cost of Goods Sold	$796,750

Requirement 5:- Prepare an Income Statement for the Year.

Income Statement

For the Year Ended

Revenues	$1,250,000
Less:- Cost of Goods Sold	($796,750)
Gross Margin	$453,250
Selling and Administrative expenses:-
Utilities Expenses	($6,000)
Salaries Expenses	($115,000)
Advertising Expenses	($137,000)
Depreciation Expenses	($25,500)
Rental Expenses	($27,500)
Operating Income	$142,250

Thank you.

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